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As foreclosure freeze spreads, more could stop making payments, economists warn

By Brady Dennis
Washington Post Staff Writer
Tuesday, October 19, 2010; 7:28 PM

FORT MYERS, FLA. - In his spacious cookie-cutter townhouse on a tidy street near downtown Fort Myers, Joshua Bartlett has waited nearly three years for the knock on the door that never comes.

He hasn't made a mortgage payment since late 2007 and doesn't plan on starting now. He could benefit from the recent halt on foreclosures announced by major lenders, amid concerns that flawed paperwork has been used to seize homes across the country, because it means he'll likely be able to stay even longer without paying.

This is one of the unintended consequences of the spreading foreclosure freeze. Although there are no statistics on how many homeowners are taking advantage of a foreclosure moratorium to avoid making monthly payments, some economists warn that this practice could become more common if a national freeze is put in place, as some lawmakers seek.

This is called a "moral hazard" - the notion that borrowers might decide to stop paying back what they owe or continue to withhold payment because they see no repercussions.

Bartlett, a soft-spoken 29-year-old, said he feels no obligation to the bank that sold him a risky mortgage at the peak of the housing boom and then did little to help him keep his place once the bottom fell out of the market.

"I don't feel remorse, because it's just a corporation," he said. "I kind of feel guilty, but then I think about my down payment and the payments I made. . . . I was an indentured servant for them, and now I'm living for free."

At the same time, Bartlett said he can't understand why he still has a roof over his head.

"I was expecting to be out of here 18 months ago," he said. "I don't know if I'm just slipping through the cracks."

It was back in 2004 when Bartlett moved south from West Virginia, fresh from college with a marketing degree to work in Florida's flourishing construction industry. He had a respectable salary and a company car. He bought his 1,700-square-foot condo in March 2005 for $158,000, according to Lee County property records, and said he put 20 percent down when he took out a loan with BB&T.

"The American dream," he said. "It was great for two years."

In the first year, the value of his home surged past $200,000. But the good times didn't last.

As boom turned to bust, Bartlett lost his steady job and his company car. In an effort to reduce his monthly payments and pay off other outstanding debts, he refinanced into a larger home loan but one that had an adjustable rate that was initially low. He figured that he would sell his home before the interest rate on the loan, taken out from Countrywide Financial, now owned by Bank of America, reset at a higher level.

But by then, the value of his home had plummeted, eventually losing more than two-thirds of what he'd paid for it. There was no longer any way to refinance.

Over time, Bartlett said, the interest rate shot up to 10 percent and his monthly payments soared to more than $2,100, including escrow. For a while, he tried to keep up. He took jobs waiting tables. He rode his bike to work. He burned through his retirement savings. Finally, he realized it was a lost cause.

"I just said, 'I can't do this,' " he said. "It took a lot for me to call it quits."

Bartlett says he called Countrywide - and later Bank of America - dozens of times, pleading with them to modify his mortgage or lower his principal. Nothing ever came through. So he simply stopped paying.

Bank of America did not respond to a request for comment on this case.

There was no way he could build up his equity in his house. "Not in a hundred years - not even if it had gold toilets," he said. And he figured his credit rating was already shot. "I would be an idiot to pay. . . . Why just keep pumping money if it's going out the door?"

In the past two years, he has seen a parade of U-Hauls carry away his neighbors and their belongings, many succumbing to foreclosure. A foreclosure filing was entered against Bartlett's home in July 2008, according to court records, yet no one has come to evict him. A hearing in his case is set for Dec. 20 but it remains unclear whether it will proceed as scheduled. Bank of America declared a national freeze on foreclosures earlier this month but announced this week that the company would resume them.

Bartlett said he knows he's an unsympathetic figure, but he points out that banks that offered reckless loans, created troublesome mortgage-backed securities, accepted billions in taxpayer dollars after they crashed and now have bungled foreclosure paperwork aren't deserving of much compassion, either. He accused the bank of duping him into a predatory adjustable-rate loan and remains bitter about its unwillingness to work with him to keep his home though he now has a steady job managing a local restaurant and could afford to make payments again.

"I've always been taught to pay your debts and be a hard worker," Bartlett said. "Instead, I just feel like a bum that's waiting for the cops to knock on the door."

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